Cheap prices will get you no where.

[AB Lawn Care]

I thought I would start a discussion about why we should charge good money for what we do and always do a good job.Here is one example of my own. <p>When I started out in this business 5 years ago I had my largest paying job taken from me.The company who under cut my price to get it had started his business around the same time I started mine.At fist I was really mad becouse like most of us I was just starting out and I was living off kraft dinner.I thought of under bidding all of his jobs but I soon decided to give up on that.Over the years he gobbled up all the work he could,did a lousy job and charged way too little.He also went nuts buying trucks and equipment.In five years he went from a old truck and a garden tractor to five trucks and trailers with the needed equipment.Well this spending spree caught up to him.This year was his last in business if he had charged good money and done a good job he might still be in business.<p>If anyone has any experinces like this please give your examples.<p>from:Adam<br>AB LAWN CARE

[nlminc]

I have a guy like that in my town. He is doing the same thing only he is still in business. I the thing that gets me is that people see the quality of work that this company puts out and still hires them. Unfortunatly people like to go for the low price to often.<br>Chris

[Nilsson Associates]

Low price may get you the work, but over time leaves you &quot;cold&quot; because of high effort, low return. There's no need to underprice in this kind of an economy, the question is what price should you be using?<br>It's not easy to answer because there are so many variables at work. Nevertheless, if you want to &quot;simplified answer&quot; first it comes down to making sure you have covered your costs. Do a cost analysis at least once a year, and adjust it to changing conditions. Relate all of your costs ... down to the hour. Over at my link at www.turfquip.com (right now) we have a sample P & L on the board. Estimate what your total labor hours will be for the upcoming year, divide those into indirect<br>overhead, to determine hourly overhead costs,<br>add your direct costs to that figure. Direct costs are shown at the top of the sample P & L. Then add an hourly profit figure on top of costs ... a figure that will motivate you, justify your efforts. After you get that number, test it against what you've been using as &quot;per hour bid figures&quot;. The number you have may be higher or lower than what you're able to sell your work for. It's not an easy &quot;quick and dirty&quot; thing ... to &quot;get at&quot; but it's worth the trouble to find out. <br>Nilsson Associates, Consultants

[lawngator]

The area of central Florida that I'm in is booming right now. Houses are going up everywhere. This has led to two negative factors. 1st, anyone with a murray and a pick-up is out there mowing(for pennies) and 2nd, people are living beyond their means to be here so they're cheap. I am only part-time, so I can afford to be choosey, but it has taking me a while to build a quality customer list. I spend a little extra time at these places and don't leave until everything's just right. I refuse to compromise on my price because I refuse to compromise on my quality work. For every 10 lawns I bid on, 9 of them were just price shopping. One thing I learned was to look to the older, more established areas of town. Leave the new neighborhoods, with their $60 - $75 per month accounts to someone else. Oh well, that's enough venting for me. Thanks, Bill

[lawrence stone]

AB,<p>Explain what you mean by cheap?<p>Do you consider another contractor &quot;cheap&quot;<br>if he can underbid you and has met the licensing and insurance requiremnents needed to work in your market?

[Charles]

I would say cheap or low ball company is one that undercuts the going rate in an area by $10 per yard. Lets say you call 5 lawn service companies to give you an estimate on your yard. 4 of them bid $35 and $40 on the job. The 5th guy comes along and bids $20 on the job. If you undercut the going rate by that much you might as well go to work at walmart. To all the new people out there and the lowballers too. This cut rate stuff is hurting you and everyone in the long run. There are alot of lawn companies charging the same rate as 9 years ago when I got into this business. Some charging less. While the cost of living and the cost of equipment has gone way up. Do you see anything wrong with that? I sure do. Once your murray mower falls apart and you have to buy commmercial equipment. You will be wondering as we are why you can't raise your rates to pay for it. And make a decent living for you and your family. Inflation will eat us all up now and in the future if the cut rate pricing continues. I think in this type of business it will continue to bring us all down.<br>

[AB Lawn Care]

Lawrence Stone<p>Thanks for all the replies.Lawerence when I said cheap I mean he charges well below the set standerd.In our area most people will not charge below $30 an hour.Some companys that have been in business for 20 years are charging between $60-$80 an hour.Becouse we have not been in business very long we charge $5-$10 over that standerd.The guy I was saying was cheap charged about $20-$25 dollars an hour witch is nuts.Some may be able to charge this in the U.S but I'm in Ontario so that figure is way too low.You also asked if he had licencsing and insurance.I sure he had insurance.When you say licensing do you mean for pesticides?If that is what you mean,he contracted that out to an other guy.If you mean some other form of licensing let me know.<p>Thanks!<p>from:Adam<br>AB LAWN CARE

[Jay Raley]

Mr. Nilsson,<p>I have a question that perhaps deserves it's own thread but I stuck it here and we'll take it from there. Our economy is booming, no question about that. But what do we, as business owners, have to look forward to with the change of Presidents in the next 1 1/2 years. Is there a historical record that we can look to and maybe expect some things. I don't want to get into a political debate, this certainly isn't the place for that, but as business owners we have to make ourselves aware of what to expect. This bull market and high times can't last forever. I mean, what goes up has to come down, eventually. I keep hearing analysts calling for a &quot;natural correction&quot; of the markets. But if you couple this correction with a change in the Executive Office couldn't we be in big trouble? I just really don't read market trends well and I was hoping that you could maybe shed a little light for us. <p>----------<br>Jay Raley<br>The Good Earth Grounds Management

[Lazer]

Certainly there is a difference between competitive and cheap.<p>I think the difference takes 5 years to decipher completely. Can a lawn company do a property for less money and be around ON THAT SITE for 5 years or more. <p>Generally what happens is that the lower price preciptates the following: Low wages, employee turnover, cut corners (or in the case of mowing: UNcut corners) Improper equipment maintenance, etc. All these things lead to customer dissatisfaction.<p>When the price is lower and the cheaper guy get the job, 1 of 3 things happens:<p>1.) He does it cheap and slowly degrades service, equipment and employees from lack of money. End=looses customer. Too Cheap.<p>2.) He realized he's too low and raises prices the following year(s). End=looses customer. Too Cheap.<p>3.) He truly is competetive and makes money. End=customer happy. Competitive.<p>It has been my experience that #1 and #2 happen far more often than #3.<p>I think this process takes 5 years to fully realize. It's just part of the business. Everone wishes prices were higher, but that's not always reality.<br>

[Charles]

I agree Lazer.When I got into business I called around and found out the going rate. I then bid the same or close to what the going rate for that size property. Why would I want to work as hard as they do and make a lot less money?The profit margin is just not that high in the lawn service business to cut the bids. Some contractors say wahoo I am making $20 or $25 per hour profit. Without any thought to expenses. New people come from another job and compare there hourly pay with their lawn service rate. Without including benefits or lack of expenses with that other job. As for the economy and presidents. The economy has never effected me in this business. Grass keeps on going no matter what happens.<br>I lose customers mainly through death and relocation. Then I have to compete with 10 year old pricing bids. Wahoo

[GeoffDiamond]

I am not a landscaper, I am a utility contractor who plows snow, thats how i found the forum. Anyways i notice a landscaper in maine that had an ad, that stated free spring clean up with mowing contract, no written contracts required. Anyways he seams a lot like the guy AB wrote about. In 4 years he went from one used truck, to 3 brand new ones, 4 walkers, and all the other stuff you guys need. He also lives on a postage stamp lot, and the town ordered him to move his business. Last year he bid low on plowing, on a major condo complex and after two storms found you needed more than a truck to plow them. His bid 10k for the year, on two 10 a lots. I just wonder how long he is going to last. He has to have all the fancy lettering on his trucks, and all the fancy lights, and uniforms which are good but his are way to much $$. Anyways he doesn't believe in written contracts is what he told me, not even with big projects. He is also very cheap, says to make money in lawns you do it with low cost and big volume, is that correct? I don't think it is but he says he has a Business Admin degree. I just wonder how long he will last.<p>Best of luck to you guys. I read you post sometimes and have found them very interesting.<p>sorry to invade the lawncare forum,<p>Geoff<br>

[jrblawncare]

Geoff,Please don't feel like you have invaded this forum with your post sometimes another set of eyes looking in is a good thing to have even if your not doing lawns,thanks for the input!!<p>----------<br>John <br>

[Nilsson Associates]

To Jay Raley,<br>Tough question, and not sure if anybody really knows where the economy is going but like you said ... how long can it last ... and if it doesn't last ... how to protect yourself from the fallout? Here are some of my thoughts ... nothing to really support them .. other than just a gut feel. I guess they fall under the category of predictions or advice.<p>1. Save more of your money, and reduce your debt to stay liquid. If the economy goes down, you'll be able to buy equipment dirt cheap (if) you have the cash. Savings will help you survive a downturn and allow you to take advantage of the &quot;bargains&quot; when cash gets tight.<p>2. If I were still in the business at this time, I'd balance my sales between 80% grounds maintenance, 20% landscape installs,<br>keep the sales base about 80% residential, and 20% commercial customers. If the economy goes down, commercial are the first to cut their maintenance budgets and look for cheaper providers.<p>3. Current pricing rates? Nobody should be<br>charging less than $35 per hour, many are at $40 to $45 per hour for the maintenance work, but the trick is to know what an hour's worth of work is. Lowballers don't last more than a year or two after they've worn out their equipment, not having gotten paid to replace it. A legitimate company has per hour costs of around $20 to $23 per hour, so how can they sell &quot;time&quot; for $20 as stated above? Not paying taxes, under the table wages, no rent payments, no insurance,<br>no workers comp, not hard to make money if you don't have any expense. <p><br>4. If you're worried about the economy, try to start replacing some of your customers now with others from very high income levels who will still be able to afford your services later on. <p>5. If the economy goes down, expect lots of competition from those who are now primarily<br>landscape install people who will &quot;rush&quot; back to the maintenance end of the business if and when housing starts decline dramatically. That happened during the last three recessions and prices really took a hit. It's hard to protect yourself against it. But one way is to start diversifying into another line (as an add on) house painting, handyman services, chimney cleaning, any services that will again become &quot;popular&quot; if and when folks have to live on less money. <p>6. My own forecast for the next five years?<br>I think the internet will provide stable or lower prices for just about any product now sold at the &quot;retail store level&quot;. Who needs a &quot;physical store presence&quot; if the item can be ordered electronically? Home delivery of just about anything will keep rising, middlemen in reail stores will continue a decline, direct factory to you sales will go way up, continue. Distributors will go way down, end product costs will remain stable, there will be &quot;room&quot; for deep discounts on many products, the shortage of labor will help stabilize the price you can get for services ... so green industry folks should make out well ... more products will be manufactured in foreign countries, many more displaced workers will enter the landscape business ... <p>My crystal ball is becoming &quot;cloudy&quot; so will stop there.<p>Phil Nilsson<p><p>

[mountain man]

I think we have huge potential in the maintenance side of the business for 20-25 more years. <p>The era from 1945-1964 was the greatest boom of newborns in history. Commonly referred to as the &quot;Baby Boom&quot; generation. The oldest of this generation is now 55. This generation also has experienced the greatest rise in wealth and standard of living due to the market, technology, etc. <p>Many of these individuals now want to reap the benefits of their hard work and would rather pay someone than have to worry about mowing the lawn or blowing leaves on Saturday when they could have a 8:00 tee time.<p>I regularly have 45-60 year olds mention when I give a quote that they have been there done that in the yard and they don't want to have to do it anymore. <p>Also with this generation, I believe health will become an issue more and more in the future. Not only will individuals hire us because of surplus wealth, but because they physically cannot do the work they used to do.<p>On a macro economic level we will obviously feel the effects of downturns in the economy from time to time. This will also vary throughout different parts of the country. I think the biggest areas that will be affected will be installations (landscape, new homes, irrigation) and commercial.<p>I think a smart business man should factor this in and budget monies for short term downturns. I would suggest adding an additional line item on the books (retained earnings, rainy day fund, etc).<p>I think a goal should probably be a fund that could support the company if it were to see a 10-20% decrease in revenues. eg. A company doing $100,000 a year in revenues should probably work to keep $10,000 to $20,000 in reserves for hard times. Remember this is not the account you use to save for equipment.<p>Obviously in downturns, you can also trim costs and cut new purchases to get through the slow periods. I feel the key is to prepare for short term swings while times are good because long term we have great potential in this business.<p>Since this has become comments on economics etc, I will start a new discussion thread for additional thoughts and comments.